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Radio Free Asia

China's Tax Breaks Hope to Lure Investors to Boost Semiconductor Sector

2020-12-23 -- The ruling Chinese Communist Party (CCP) has announced a slew of tax breaks for semiconductor makers, in an apparent bid to lure investors from around the world, campaign experts said reflects China's vulnerability to tightening U.S. export controls on technology exports to China.

The package of tax incentives applies to companies that have 15 years or more of experience, and which have the know-how to produce advanced chips of 28-nanometers or smaller, the state-run China Daily newspaper reported.

Such companies will be exempt from paying corporate income tax for up to 10 years, the paper reported on Dec. 19.

Companies making 65- to 28-nanometer chips will get five years of tax exemption and a 50 percent discount on the corporate tax rate for the subsequent five years, under terms announced by the ministry of finance in Beijing.

When contacted by RFA, Taiwan's semiconductor giant TSMC said it was still studying the package, and had no comment at this time.

Lee Cheng-hung, chairman of the Taiwanese Chamber of Commerce in Shanghai, said the deal could prove attractive to Taiwanese investors.

"Taiwan-funded enterprises are provided with another opportunity to choose locations where policies are more favorable," Lee told RFA. "The 14th Five Year Plan, which starts next year, puts technological innovation ahead of everything, and the Chinese market is very large."

"Of course, semiconductors are a very important part of that," Lee said. "It's part of [CCP policy] to stimulate the domestic economy."

Struggling to catch up

Liu Pei-chen, a researcher and industrial consultant at the Taiwan Economic Research Institute, said China is still struggling to play catch-up with Taiwan's semiconductor industry, however.

"China's issues aren't going to get resolved simply because of these tax breaks," Liu told RFA. "It can't be smoothly implemented right now, because some key elements of the picture are still missing, and they are controlled by the United States."

And Lin Hsiu-min, a lecturer at Soochow University, said the tax breaks were largely symbolic at this stage, as Chinese semiconductor companies Fujian Jinhua and SMIC have been hit by a string of U.S. sanctions.

"It seems to me that they can't solve this by throwing money at it," Lin said. "The problems they are facing right now ... can't be solved by tax breaks."

Lin said China still lacks the basic research base upon which to innovate in the sector.

"Look at how many physics and chemistry awards Japan has won," he said. "How many physics and chemistry award winners does China have?"

Added to export blacklist

The China Daily report appeared on the same day that the U.S. Department of Commerce added prominent Chinese semiconductor-maker SMIC and other tech companies to an exporting blacklist.

"We will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary," Commerce Secretary Wilbur Ross in a statement.

"Between SMIC's relationships of concern with the military industrial complex, China's aggressive application of military civil fusion mandates and state-directed subsidies, SMIC perfectly illustrates the risks of China's leverage of U.S. technology to support its military modernization," Ross said.

Meanwhile, Taiwan's semiconductor giant TSMC said it is aggressively recruiting over 600 engineers and executives for a U.S.$12 billion chip foundry in the U.S, according to Nikkei's news website.

The world's largest contract chipmaker will initially bring together a mix of current employees and new hires to staff a $12 billion chipmaking plant it will start building next year in Arizona, the report quoted TSMC Chairman Mark Liu as saying.

TSMC plans to bring its newly hired engineers to the southern Taiwanese city of Tainan, where the company's current 5-nm chip plant is based, for a roughly yearlong intensive training program before they depart for the Arizona-based plant, the report said.

Reported by Hsia Hsiao-hwa for RFA's Mandarin Service. Translated and edited by Luisetta Mudie.

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